The company’s shares have fallen 10% – almost wiping 850m off its value – given the investors’ ambition at Gobbetti to bring the frightened Burberry into ultra-luxury brands such as Gucci and Dior, with higher prices and profit margins. To do this, it will cost millions of pounds to turn stores into luxury temples and stop selling its trench coats and handbags through department stores, cutting sales in the short term.
Gobbetti unexpectedly announced his vision nine days after Christopher Bailey, Group President and Design Director. “I did not get involved and I felt sad when I saw him go,” said Gabriel Bailey left. “The process is already underway, but it will take some time to find the right Burberry creative leader in the next decade, and do not expect any notice to be forthcoming.”
Bailey turned Burberry from a small British company into a global fashion brand that established its digital presence through live fashion shows and the redesign of flagship stores. He became chief executive in 2014, but two years later, gossip veteran Gobbetti was hired as co-chief executive, after which investors began to worry that the company was running a business.
In July, Gobbetti replaced Christopher Bailey and became the only chief executive. Bailey was appointed president, and suddenly he decided to quit was the surprise of most fashion watchers.
Before Thursday’s strategic update, Gobbetti, who ran Céline, said he would start shutting down some department stores in the United States and then into Europe. Gobbetti explains: “We must improve our brand position and we must firmly root ourselves in the luxury market.” He said the luxury market is changing and that consumers want more “fashion and novelty.”
Gobbetti gives an example of a simple polo shirt that costs between 145 and 275 pounds. He said they need 50% more than other luxury brands. Other products, such as Burberry’s famous trench coat, which prices around ￡ 1,200, have been at the right level, he said.
Burberry said it is too early to provide figures for the affected outlets and jobs. To help fund this transformation, Gobbetti said the company will cut operating costs by 120 million pounds a year, but these savings will go to investment plans. Royal Bank of Canada analyst Rogerio Fujimori said the plan required investors “to invest a lot of time and patience.” The stock closed down 198 pence at ￡ 17.87.
British fashion designer Phoebe Philo is the creative director of Céline in France and the leader in replacing Bailey. Burberry trades on 161-year British heritage, but Italian traders say it is not necessary for a country’s candidates to come from this country because there are many examples of U.S. and European brands from creative directors elsewhere.
With Burberry announced half a year’s profits, Gobbetti’s plan was announced. Similar retail sales rose 4% in the six months to September, above the 3% growth expected by analysts and double-digit growth in the UK. Pre-tax profit is also higher than expected 128 million pounds. Overall, revenue increased 9% to 1.3 billion pounds. Rainwear has been driving sales for the past six months, and car jackets and tropics are particularly welcome.
China’s growth was strongest, with sales in the United Kingdom slowing from the same period last year. After the vote-taking vote in June 2016, the British pound plunged and poured in heavily to buy Burberry coats and bags for tourists.
Steve Clayton, manager of the Hargreaves Lansdown Fund, which holds a 3.8% stake in Burberry, said: “Mr. Gobbetti wants to start with Burberry from the US wholesale channel, with a much wider pipeline than the most unique store. A reorientation of a textbook luxury brand should match Burberid with the world’s most unique name and match profit margins, but it will take time in the short term that sales growth will be hampered and the group must step up its investment to achieve its goals ”
Clayton believes that this move makes sense. “Real luxury brands have huge pricing power to create staggering profits and cash flows, and they are sold to wealthy consumers just as much as their clients are able to weather the downturn, as Mr. Gobbetti said , “We will play the most valuable and enduring market.” This is a worthy award. “